From Fib's weekly updates and the chat transcripts, readers should be able to see there are some problems for the bullish case in breadth and volume McClellan Oscillators (MCO) both for the NYSE and NASDAQ. It is becoming evident the market indices are climbing higher on the backs of fewer issues over the past few weeks.

The climax indicator variants (CLX, CLXp, and AYDIS), made famous by our friend cheif, are sending a similar message. First of all, there is the Dow CLX MCO, which measures the shorter term acceleration of the Dow components' accumulation and distribution. The CLX, utilizing a rigid recipe, looks at advancing and declining volume characteristics of an index's components by determining if each component's on-balance volume is signaling short term accumulation or distribution. The daily CLX value is derived by adding the positive (accumulating) components and the negative (distribution)components. Thus positive daily composite CLX values denote more index components are under short term accumulation, and negative daily composite CLX values tell us more index components are under short term distribution.

There are several methods of massaging the CLX daily numbers to compare its trend, and one is the MCO. Currently, the Dow CLX MCO remains beneath the zero line suggesting the majority of the Dow components remain under selling pressure. Note the recent 400 point Dow rally from the October 19th low, resulted in the CLX MCO just barely breaking zero line October 31st, before falling below zero again following last Thursday's sell off. This behavior suggests the majority of Dow components were either under distribution or neutral over the past couple of weeks.

The CLXp is a climax indicator cheif invented that divides each components volume by the number of pennies the stock advanced or declined, i.e. an advance of $1.43 would require the volume to be divided by 143, and advance of $0.11, would result in the volume be divided by 11. Thus the higher magnitude of the advancing component price, the lower the CLXp volume number.

My interpretation of CLXp then, is the daily CLXp composite absolute value being higher than the CLX composite absolute value magnitude number, suggests the index components, on-balance, made their advance or decline on smaller price changes, dividing volume by a smaller number (price change) will provide a higher magnitude result than the volume divided by a higher price change.

If my interpretation is all wrong, then perhaps cheif will chime in on what the CLXp purpose really is.

Currently, the Dow CLXp MCO is above zero with a tightly congested MCO pattern over the past three days. The ability of the Dow CLXp MCO to remain above zero suggests not only did the Dow climb higher on the backs of fewer issues leading up to the Thursday decline, but Thursday's carnage did not flip most Dow components' CLXp values negative (I had a zero CLXp number for Thursday).

The AYDIS indicator is derived by subtracting the daily CLXp number from the daily CLX value. Negative AYDIS values mean the CLX values are less than CLXp values if both are positive, or if both CLX and CLXp are negative, CLXp is less negative than CLX.

Currently, the Dow AYDIS MCO is plunging to new multi-month lows, which from past behavior, suggests the Dow will make lower price lows than seen in the past two weeks to set up a AYDIS divergence with price at this correction's bottom.

The behavior of the NDX CLX variants' MCOs is also suggesting the NDX has been achieving new multi-year price highs with few components participating. The NDX CLX MCO hasn't managed to get above its zero line despite the higher price highs over the past couple weeks, suggesting the majority of NDX components are in a short term distribution phase... not conducive for sustaining higher price highs without more help from more NDX members.

The NDX CLXp MCO managed to make it into positive territory Friday after encountering resistance at the zero line for the prior two days.

The NDX AYDIS MCO is also making a nominal lower low than the lows posted over the past couple of weeks, suggesting CLX has been weaker than CLXp, Friday's CLX value was +9 while the NDX CLXp was +33, a lopsided, and sometimes bearish discrepancy. Broad based participation in an index up move normally have positive AYDIS values.

A couple options sentiment indicators that have been raising warning flags for some time, and they didn't get any better last week despite the price declines.

First, the weekly small equity option traders' Buy To Open (BTO) put-call ratio continues to exhibit a very optimistic view by the call buyers of 1 to 10 contracts per transaction. Often, but not always, the 4 week MA of the indicator (black curve) will turn up before a sustained correction unfolds. However, the current levels of this ratio are not usually rewarding experiences for the bulls.

The weekly equity option small traders BTO call-put premium ratio 3 week MA is at levels not achieved since June 2000. The smallest equity options players have become accustomed over the past couple of years to the uptrend in prices bailing them out when they get too bullish, and it appears there is on-balance, little fear among this group that an appreciable correction is in the cards.

This next indicator is the percentage of equity option BTO call premiums paid by the smallest traders, of the total BTO call premiums paid by all retail customers, regardless of transaction size. Perhaps the smallest equity option traders are opening deep in the money call positions resulting in the current multi-year high in retail BTO call premium percentage, but sooner or later the zeal of smallest options trader in loading up on BTO calls, and paying dearly for those positions, will matter and result in a trip to the wood shed for this group of aggressive bulls.

There are a few usually reliable tools suggesting higher prices early this week, but there have been, and still are, numerous warning flags bullish positions will need stops in place at the least over the coming weeks. In the fullness of time.....

Randy, thank-you for what is a considerable amount of work and unlikely available at other sites. Your insights are always well researched and informative. Please continue to update us regularly on the CLX/Options Data, greatly appreciated.

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